State budget under pressure: Mattle demands compromise before Friday!

State budget under pressure: Mattle demands compromise before Friday!

On November 24, 2025, the finances of the states and municipalities will be the focus of the political discussion in Austria. The last round of negotiations between the federal, state and local governments had to be canceled at short notice, which fueled fears about the budget deficit. Tyrol's Governor Mattle said that the deficit of states and municipalities could be up to two billion euros worse than originally expected. The overall deficit is forecast to rise to 4.9 percent of GDP, exceeding the target of 4.5 percent and failing to meet the EU deficit framework target of three percent. This unsatisfactory situation will underline the urgency of a compromise between political stakeholders.

Mattle believes that the federal government must accommodate the states and municipalities. He calls for a viable solution that meets financial requirements and at the same time takes into account the consolidation of public budgets, since the public sector is not allowed to spend more than it takes in. Nora Novak, Vienna City Councilor for Finance, is optimistic that a solution will be found that recognizes the financing of the federal states' services. At the same time, Lower Austria's Finance Minister Kasser emphasizes that the main responsibility for the national debt lies with the federal government and calls for a fair distribution of tasks and financial coverage in the negotiations.

Public finance challenges

The stability pact, which regulates the debt options of local authorities, must be transmitted to the EU by the end of the year. In the current situation, the Tyrolean governor describes the consolidation process as “no alternative”. In view of sharply increasing expenditure in the areas of health, care and childcare, it is crucial for many federal states to reach a viable solution in the negotiations.

The economic situation in the EU is tense because several member states are not complying with the requirements of the Stability and Growth Pact. According to Destatis, EU member states are obliged to maintain a public deficit of a maximum of 3% of GDP and a debt level of no more than 60% of GDP. Germany achieved a deficit ratio of -2.8% of GDP in 2024, but countries such as Romania (-9.3%) and France (-5.8%) exceeded this limit, which may lead to an excessive deficit procedure.

Reform of the Stability and Growth Pact

The need for a stable financial framework is highlighted by the current changes in the Stability and Growth Pact (SGP). New rules will come into force on April 30, 2024, designed to ensure fiscal discipline and stable public finances in Europe, while promoting reforms and investment. These reforms were initiated in the wake of the COVID-19 pandemic and geopolitical events and emphasize the urgency to reduce debt levels and reduce deficits.

The reform provides for a preventive and a corrective arm, with the preventive arm intended to avoid excessive deficits. Member States must submit medium-term fiscal policy-structural plans, while the corrective arm includes provisions on the excessive deficit procedure that apply when the deficit reference value is exceeded. This highlights the need for action, as 11 member states had a deficit of over 3% of GDP in 2022, which puts the credibility of the regulations at risk. A comprehensive understanding of these financial framework conditions is crucial for the upcoming negotiations in Austria.